Bunge implements $250 million restructuring program

WHITE PLAINS, NEW YORK, U.S. – Bunge Ltd. on July 20 unveiled plans for a comprehensive global Competitiveness Program to improve its cost position and deliver increased value to shareholders.

The program, which has been discussed over the past several quarters, will rationalize Bunge’s cost structure and reengineer the way it operates, reducing overhead costs by approximately $250 million once fully implemented. These savings are in addition to the savings generated through the company’s existing industrial productivity program. The company said it hopes to achieve these cost savings by adopting a zero-based budgeting process that will target costs in specific budget categories, simplifying its organizational structure, streamlining processes and consolidating back office functions globally to improve efficiency and scalability. In addition, the company will be reducing its 2018 total capex spend from a previously announced $750 million to $650 million.

Soren Schroder, chief executive officer of Bunge.

“We have a unique, irreplaceable footprint and a strong, growing customer base that relies on us for competitively priced, high quality products under all market conditions,” said Soren Schroder, chief executive officer of Bunge. “Demand and margin trends are positive, and the Competitiveness Program is a transformational next step to reengineer our organizational and cost structure, which will advance our growth agenda and create significant value for our shareholders.”

The company expects the Competitiveness Program to provide modest benefits to 2017 earnings. Approximately $100 million of the savings are anticipated to be realized in 2018 and $180 million in 2019. Full run rate cost savings of $250 million are expected to be achieved by the end of 2019. The company expects total non-recurring charges associated with the program to be 0.8-1.2x of targeted savings, most of which are expected to be cash charges spread over the next two and half years.

Thomas Boehlert, chief financial officer.

“We started the process to launch this program in early 2017 and are now beginning implementation,” said Thomas Boehlert, chief financial officer. “I’m confident that these steps will improve our competitiveness and position us well as market conditions improve.”

The company also announced that it expects second quarter 2017 adjusted earnings to be modestly profitable, but below the low end of the range of analyst estimates, primarily driven by challenging global agribusiness market conditions.

“Market conditions during the second quarter were challenging, driven by unprecedented farmer retention in South America, which pressured margins throughout the chain,” Schroder said. “Increased farmer pricing early in July, as well as more dynamic markets and continued strong demand, lead us to expect much improved agribusiness conditions in the second half of the year.”

On July 19, Credit Suisse lowered its second-quarter EPS estimate for Bunge to 10¢ from 35¢, and its full-year EPS estimate to $4.04 from $4.28.

Robert Moskow, a research analyst with Credit Suisse.

“We think investors will find this initiative insufficient if it is meant as a defense plan to fend off Glencore’s interest in the company or if it signals a sudden lack of interest on Glencore’s part,” Robert Moskow, a research analyst with Credit Suisse, wrote in the July 19 report. “Our hope is that Bunge management and its board does indeed maintain an open mind to a combination but absent a formal offer on the table, recognizes the importance of adopting a plan to accelerate shareholder value creation independently.

“Unlike consumer staples, there is not much evidence yet that participants in this industry can ‘cut their way to prosperity.’ Perhaps part of the problem is that companies like ADM and Bunge rely heavily on management talent and deep geographic coverage to leverage their information advantages globally and manage risk. If the cost savings programs cut back too far, these companies will lose those advantages and unintentionally cause the top people in their organizations to leave as well. The rising negotiating power of Bunge’s Brazilian farmer customers and its global customers makes Bunge’s risk-management decisions paramount for generating acceptable returns.”